An overview of E&P on the African continent post CV19 & March 2020 Oil price decline. Past performance, key players, challenges, future focus and takeaways

1. African Exploration: What’s next?
AAPG Europe
13th May 2020

2. Outline
• African Exploration look-back
• Landscape context
• Challenges, Players & Exploration “areas to watch”
• Opportunities & Takeaways

3. African “Play” grounds: ..2014.. the good old days..?
1
MSGBC &
2020

4. African Exploration: 2015-20 scorecard
2
Challengers Leaders
Niche Players Visionaries
Lifecycle Execution / monetisation
Exploration Success

5. Landscape context
“If we are not extremely
careful, we come to
believe that the unusual
is usual: that this is what
the world looks like.”
Hans Rosling
Factfulness (2018)

6. CV19 + Oil price “Less for longer”: Adapt or Wither?
• C.$1 Trn invested in US UCRs (71% of new global oil since 2005)
w/$700 Bn of TSR returned to date-mass bankruptcy looms
• Majors C.$329Bn FCF < C.$536Bn of buybacks & dividends
2010-20. At a major pivot point with production in “sunset”
mode to 2050. Actively decarbonizing & hedging upstream
positions through select disruptive renewable technologies
• $4.1 Trn on Renewables 2000-18 (c.4% of demand today) vs.
global economy of $86 trn/pa. Still a 20-year plus transition
• NOCs who control c.60% of the landscape however less impacted
societally & from investors calls to decarbonize. Needs a global
view per CVX/XOM position (shuffling the emissions problem)
• Capital markets tight. Self-sourced / highly selective $$ the new
normal
• The perfect storm (CV19, ESG, Transition, $30-40 near term WTI,
sub $2 HH) – “Resilience” can be an over-abused term
3

7. African GDP growth resilient - primed for a rebound
• High growth Economies such as
Ghana, CdI, Senegal, Ethiopia, Kenya
& Tanzania (less resource intensive),
will see slower expansion in 2020
but still with +ve growth rates
• 2021 predictions are for a robust
rebound, however the African
Development Bank estimates that
Africa will lose between
US$35-100Bn due to the fall in raw
material prices caused by the
pandemic
4 Sources: Deloitte, IEA, IMF, WorldBank

8. Challenges, Players & Focus
“A weighted-average underlying decline
rate – in a zero-drilling scenario – is
over 25% year-on-year in the US,
exacerbating the challenge for
operators. This compares to Russia at
less than 20% and Saudi at likely less
than 10%.”
30th March 2020
Fraser McKay
VP Upstream
Woodmac

9. E&P Landscape challenges
• Capital markets, TSR, CV19, Climate
risk, Field decline rates, acreage
activity/ refresh & Discretionary
Capex..
• C.3.3 Bbo of Oil and ~4.1Boe Gas
near term project FIDs likely delayed
due breakeven prices >$40/bo & >$6
for LNG in addition to delays in Data
acquisition, OFS contracts & of
course Exploration/NFW drilling
• Major impact on relevant Economies
(Nigeria, Algeria etc.) / Congo,
Angola, DRC & Gabon all >70% net
State take
• Critical juncture for fiscal flexibility &
progressive reforms- contract
renegotiations, tax relief, FM
definitions, stability, local content
adjustments etc. 5

10. NOCs: “Capability & Capacity / win-win outcomes”
• Globally NOCs control c.66% of oil and gas
reserves, c.58% of production
• 22 African NOCs currently active across the
continent.
• Select INOCs e.g. Petronas & Qatar Petroleum
active & attempting contrarian success through
low part of cycle
• No real working O&G Supranational/regional
strategic bodies
• Few NOCs have independent E&P capability &
capacity
• ESG & Transition drivers less of a priority
• Opacity challenges: Regulatory oversight,
contract stability, susceptibility to rent-seeking &
political manipulation need to be overcome
6
56% 46%
30%
12% 14% 15%
22% 28%
40%
Share of oil reserves, oil production and oil
upstream investment by company type, 2018,
source IEA
Reserves Production Investment
Source: IEA

11. Majors: “Capital allocation strategies / balance evolving”
• Sustainability through Transition to insulate against
further price shocks. Have depth of portfolio to
leverage from- but how to find the balance?
• Less Exploration- focusing on Prolific Basins w/shorter
monetization lifecycles (Total a Frontier exception?)
• Bias to Gas dominant portfolios (e.g. ENI)
• New Business leaning to advantaged jurisdictions
with low break-evens & rapid time to market
(Unicorns). Diluting assets that may be NPV stranded
by 2035+?
• M&A execution challenged due volatile bid-ask
spreads & need to restructure deals w/contingent
uplifts
• How to communicate to often “Energy blind”
stakeholders / consumers, the most suitable ESG /
TSR transition path to 2040+
7
Select Companies
2020 Exploration
Activity

12. Mid Caps: “Capital starvation– M&A targets?”
• Mostly material activity reductions in 2020 – ideally
need to stay self funded from 2021+ to survive
• Africa Oil: Standout full cycle disruptive E&P player
(POGBV, Impact, Eco & Africa Energy)
• Kosmos: Generic 500 MMBO Exploration prospect
with discovery in 2025 & initial production in 2030, -
ve c.50% NPV (due emissions from 2040)
• Nigerian independents: High capital intensity (debt/
equity) c.400kbopd, but account for 90% ($8Bn) of
O&G debt in country owed to local banks
• RBL credit crunch dramas (shorter tenors & higher
interest) (ala Tullow, Premier etc.) to unfold due
reserve re-evaluations? Hedging will mostly run out
by late Q4 2020.
• More conservative decision making & Debt
restructuring for some will mean less risks taken
with consolidation inevitable? 8
Select Companies
2020 Exploration
Activity

13. Small Caps: “Is resilience futile (w/some exceptions)?”
• Higher risk Exploration a tough option for small
caps, due lack of capital, control over pace,
buyers & market interest. In major cash
preservation mode. Market caps now closer to
core NAV at $35
• There are always exceptions- opportunists with
funding. This next 18 months will see many
wither, but some contrarians shine: Africa Energy
(Frontier long cycle exploration) & Aminex
(Advantaged domestic gas exploration) bucking
the knuckle-down trend in 2020
• Success can be complex: e.g. FAR suffering from
Sangomar debt financing challenges, with knock
on impact to Gambia Exploration efforts
• How to stay relevant, secure funding & create
near term value through Exploration..ahead of
one final bull run for Oil from late 2021+?
9
Select Companies
2020 Exploration
Activity

14. Private Equity: “Growth party over, onto ESG & yield?”
• Growth multiples model challenged, lack IPO or
trade buyer exit(s) so now primarily a yield play-
other sectors preferable?
• Select Exploration growth vehicles struggling i.e.
Delonex & Apex on the market?
• ESG and Transition considerations evermore a
primary investment driver
• Mid life production players such as Assala, Trident
etc. will continue to sweat the margins through the
cycle, whilst Neptune moving aggressively ahead in
Algeria and Egypt
• Distressed M&A opportunities will appear- buyers
market, but not too many buyers
• PE sweet-spot: 2022-2030+ advantaged Plateau
production (Low capex/opex, price & risk)
10
Select Companies
2020 Exploration
Activity

15. Luiperd /
Blaasdorp
Exploration areas to watch
11
Atum
Venus
MSGBC: Grow-Harvest Namibia-S.Africa: Frontier Egypt: Mature (oil) Frontier (gas)
1. Majors continue to explore Cen-Tur DW
post Richat & Jamm dry holes
2. 10 blocks to be offered in 1st Senegal
round, delayed from Jul-20?
3. Kosmos/BP harvesting of Tortue-Yakaar-
Birallah LNG hubs to commercialisation
4. Sangomar (Atum) shelf edge analogs
1. Western Desert-Poster child for near infrastructure short cycle
Exploration monetization (ILX). Highly active M&A (Shell)
2. Zohr soon to be at 3Bcf/d, & focus moving West.
3. New Red Sea acreage blocks 1, 3 & 4 ($326 MM min
commitments) acquired by Shell/Mubadala & CVX
1. Total/Impact Venus well in block 2912, Azinam
expanding acreage footprint, Gazania well to drill in
2B. Kosmos, XOM & Shell all with acreage footprints
2. Luiperd-1 to prove up Paddavisie AVO led fairway 2C
condensate reserves- delayed to Q3 2020
2020-21 High Impact wells
1
2
3
1
2,3
4
1
2

16. A key Energy priority.. to address burgeoning growth
“At a time of great
uncertainty, we have an
obligation to make bold,
decisive, and pragmatic
policy decisions to get the
industry moving again,”
4th May 2020
Gabriel Mbaga Obiang Lima,
Minister of Mines and Hydrocarbons,
Equatorial Guinea.

17. The need to tackle SSA Energy poverty
• C.600 Million Africans without access to Electricity
• Fossil fuels (ex Coal) provide c.57% of the Energy mix in 2019, from c.37.5% in
2000
• Africa has the Energy resource but lacks Supranational integration, Infrastructure
(instability-power outages) & Domestic revenue mobilization
• Small scale mini-grid & Gas to Power solutions provide a bridge to the (sustainable
Renewables) future and for major investors to add power to their portfolios
• Investors & Resource holders (Mega Cities vs States vs Regions?) full value chain
business models to break free from pervasive institutional inertia & behaviours
12 Source: African Energy Atlas 30 Apr-20

18. A Public-Private Partnership (PPP) approach
13
2018 African LNG projects plus Gas reserves
by Country. Global gas market oversupplied
through next few years but forecast to x2 by 2040
Energy solutions from Space (World Resources Institute):
Geospatial mapping of renewable energy potential, location of
infrastructure (grid network, roads, power plants) etc.
Domestic
obligation LNG
reserves access,
associated gas /
flared gas &
unlocking
stranded 2C
resource, plus
gas focused ILX
Potential for PPP & BOOT approach from
Production to Midstream to Power &
Distribution: move to more of a Utility yield
model?
Regional Gas hubs (MSGBC, Ethiopia,
Tanzania, Mozambique. W.Africa etc.)

19. African Exploration: 10 takeaways
1. Compelling supply-demand (Demographic) metrics
2. Capital markets constrained & selective (TSR & ESG)
3. Fiscal flexibility will win $$ (Bid rounds to PSCs). Less buyers –
more bilateral negotiations
4. Clear monetization path(s) & bias to shorter cycles
5. Select UDW / DW only viable (long cycle) for Majors
6. Lowest cost of supply wins (capital / lack of control of lifecycle
pace hits hurdle rates hard)
7. 2020 ..a year of Desktop studies, goodbye more people /
Corporate memory vs Embracing digitalization (ML/AI)
8. Corporate consolidation (Cheaper to buy Companies than
develop assets) & Fixed price gas asset M&A (clean annuities)
9. SSA DomGas opportunity needs infrastructure $$ / policy
changes & Supranational will.. Patience needed.
10. Mid-decade oil supply shock price correction (lack of $$ &
pendulum overswing)
14
2020+ High Impact wells
Active
Challenges
Stalled
Luiperd
Venus
Ondjaba
2020/21 bid
round

20. African Exploration: What’s next?
Eskil Jersing
ejersing@gmail.com
“Elfu huanzia moja – A thousand begins with one.”